SECURITIES AND EXCHANGE COMMISSION
Washington, DC
20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Three Months Commission File
Ended January 27, 1995 Number: 1-3011
THE VALSPAR CORPORATION
State of Incorporation: IRS Employer ID No:
Delaware 36-2443580
Principal Executive Offices:
1101 Third Street South
Minneapolis, MN 55415
Telephone Number: 612/332-7371
The registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities and Exchange Act of 1934 during the preceding 12 months and
has been subject to such filing requirements for the past 90 days.
As of February 28, 1995, The Valspar Corporation has 21,651,878 shares of common
stock outstanding, excluding 5,008,778 shares held in treasury. The Company had
no other classes of stock outstanding.
THE VALSPAR CORPORATION
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<CAPTION>
Index to Form 10-Q
for quarter ended January 27, 1995
<S> <C>
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - January 27, 1995,
January 28, 1994, and October 28, 1994................................................ 2 & 3
Condensed Consolidated Statements of Income - Three
months ended January 27, 1995 and January 28, 1994.................................... 4
Condensed Consolidated Statements of Cash Flows - Three
months ended January 27, 1995 and January 28, 1994.................................... 5
Notes to Condensed Consolidated Financial Statements -
January 27, 1995...................................................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................... 7 & 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 8
Item 6. Exhibits and Reports on Form 8-K........................................................ 8
SIGNATURES.......................................................................................... 9
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
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<TABLE>
<CAPTION>
January 27, January 28, October 28,
1995 1994 1994
(Unaudited) (Unaudited) (Note)
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C>
Cash and cash equivalents $ 2,364 $ 1,499 $ 2,364
Accounts receivable less
allowance (1/27/95-$970;
1/28/94-$1,198; 10/28/94-$835) 105,832 93,681 111,907
Inventories:
Manufactured products 58,432 51,975 50,046
Raw materials, supplies, and
work-in-process 31,055 26,180 32,384
89,487 78,155 82,430
Other current assets 20,824 21,831 24,198
TOTAL CURRENT ASSETS 218,507 195,166 220,899
OTHER ASSETS 34,093 34,607 35,441
PROPERTY, PLANT AND EQUIPMENT 217,998 208,480 208,293
Less allowance for depreciation (105,300) (104,267) (101,265)
112,698 104,213 107,028
$365,298 $333,986 $363,368
</TABLE>
Note: The Balance Sheet at October 28, 1994 has been derived from the audited
financial statements at that date.
See Notes to Condensed Consolidated Financial Statements.
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED - (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
January 27, January 28, October 28,
1995 1994 1994
(Unaudited) (Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C> <C>
Notes payable to banks $ 34,021 $ 13,889 $ 15,000
Trade accounts payable 46,646 43,093 51,230
Income taxes 8,449 7,093 8,149
Accrued liabilities 43,987 43,280 60,207
Current portion of long-term debt 220 236 212
TOTAL CURRENT LIABILITIES 133,323 107,591 134,798
LONG-TERM DEBT 35,222 7,608 35,334
DEFERRED LIABILITIES 19,475 18,196 19,116
STOCKHOLDERS' EQUITY:
Common stock (Par Value-$.50;
Authorized 30,000,000 shares;
Shares issued, including shares
in treasury, 26,660,656 shares) 13,330 13,330 13,330
Additional paid-in capital 9,201 4,376 6,937
Retained earnings 203,213 224,940 201,070
Other (2,725) (1,585) (2,616)
223,019 241,061 218,721
Less cost of common stock in
treasury (1/27/95-5,012,964
shares; 1/28/94-5,006,849 shares;
10/28/94-5,078,470 shares) 45,741 40,470 44,601
177,278 200,591 174,120
$365,298 $333,986 $363,368
</TABLE>
Note: The Balance Sheet at October 28, 1994 has been derived from the audited
financial statements at that date.
See Notes to Condensed Consolidated Financial Statements.
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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<CAPTION>
THREE MONTHS ENDED
January 27, January 28,
1995 1994
<S> <C> <C>
Net sales $161,358 $147,972
Costs and expenses:
Cost of sales 119,019 108,664
Research and development 6,333 5,867
Selling and administration 26,575 24,219
Interest expense 695 225
Other income/(expense) - net 250 (1,830)
152,372 140,805
Income before income taxes 8,986 7,167
Income taxes 3,613 2,903
Net income $ 5,373 $ 4,264
Per common share (Note 2):
Net income $ 0.25 $ 0.20
Average number of common
shares outstanding 21,691,182 21,722,674
Dividends paid per
common share $ 0.15 $ 0.13
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
THE VALSPAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
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<CAPTION>
THREE MONTHS ENDED
January 27, January 28,
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 5,373 $ 4,264
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 5,155 4,912
Provisions for:
Other deferred liabilities 49 170
Loss on sales or abandonment of
property, plant and equipment 91 2,532
Increase (decrease) in cash due to
changes in net operating assets:
Accounts and notes receivable 6,075 11,824
Inventories and prepaid assets (3,683) (9,648)
Trade accounts payable and accrued
liabilities (17,693) (10,000)
Income taxes payable 300 (5,202)
Other 226 156
Net Cash Used in Operating Activities (4,107) (992)
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (10,038) (7,447)
Net Cash Used in Investing Activities (10,038) (7,447)
FINANCING ACTIVITIES:
Net proceeds from borrowings 18,917 9,555
Proceeds from sale of treasury stock 873 1,943
Purchase of shares of Common Stock for treasury (2,445) (259)
Dividends paid (3,230) (2,807)
Other 30 (131)
Net Cash Provided by Financing Activities 14,145 8,301
DECREASE IN CASH AND CASH EQUIVALENTS 0 (138)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,364 1,637
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,364 $ 1,499
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
THE VALSPAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 27, 1995.
NOTE 1: The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended January 27, 1995 are not necessarily indicative of the results that may be
expected for the year ended October 27, 1995. For further information, refer to
the consolidated financial statements and footnotes thereto included in The
Valspar Corporation's annual report on Form 10-K for the year ended October 28,
1994.
NOTE 2: Net income per share is based on the weighted average number of Common
Shares outstanding during each period plus common stock equivalents on stock
options. Potential dilution from the exercise of stock options is not material.
NOTE 3: Effective October 29, 1994, the Company adopted FASB Statement No. 112,
"Employers' Accounting for Postemployment Benefits." The cumulative effect of
adopting the new statement was not material.
NOTE 4: On April 29, 1994 all the Common Stock of McWhorter Technologies, Inc.
was distributed to the Valspar common stockholders in the form of a stock
dividend.
The unaudited consolidated pro-forma information below shows the results of
operations as though the McWhorter spin-off had occurred at the beginning of
fiscal 1994. The unaudited consolidated pro-forma financial data is provided for
informational purposes only and does not purport to be indicative of the future
results or what the results of operations would have been had the McWhorter
spin-off occurred as described above.
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<CAPTION>
PRO-FORMA CONDENSED STATEMENTS OF INCOME (Unaudited)
(Dollars in Thousands, Except Per Share Amounts)
Three Months Ended January 28, 1994
Historical Adjustments Pro-Forma
<S> <C> <C> <C>
Net sales $147,972 $(10,405) $137,567
Cost of sales 108,664 (8,206) 100,458
Gross profit 39,308 (2,199) 37,109
Operating expenses 30,086 (1,248) 28,838
Income from operations 9,222 (951) 8,271
Interest expense 225 439 664
Other income (expense) - net (1,830) 2,474 644
Income before income taxes 7,167 1,084 8,251
Income taxes 2,903 471 3,374
Net income $ 4,264 613 $ 4,877
Net income per common share $ .20 $ .22
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Operations: The Company's operations for the first quarter ended January 28,
1994 include the results of McWhorter, Inc. The assets and liabilities of
McWhorter's operations located in Philadelphia, Pennsylvania; Carpentersville,
Illinois; and Portland, Oregon were distributed to Valspar shareholders in the
form of a stock dividend on April 29, 1994. Note 4 describes this transaction in
greater detail and presents pro-forma financial information as though the
distribution had occurred at the beginning of fiscal 1994.
Net sales for the first quarter increased 17.3% to $161,358,000 compared to
pro-forma sales of $137,567,000 a year ago. The increase was driven by higher
sales volumes in the Consumer, Industrial, Packaging, EPS and Color Corporation
businesses, with Consumer and Packaging showing the largest volume growth. Net
sales for the first quarter were not materially affected by price increases
which the Company has implemented to counter rising raw material costs. The
impact of the pricing actions will begin to be realized in the second quarter.
Compared to historical results in fiscal 1994, sales increased 9.1% for the
first quarter. Due to the seasonal nature of the Company's business, sales for
the first quarter are not necessarily indicative of the sales for the full year.
The Company's gross profit margin for the first quarter this year was 26.2%
compared with 27.0% on a pro-forma basis last year. This decline is due
primarily to rising raw material costs which are anticipated to continue for
several months. The impact of rising raw material costs during the first quarter
was partially mitigated by contractual arrangements holding prices on certain
goods. Other factors contributing to the reduced margin were a shift in the
product mix, and higher freight costs in our Consumer business which will
continue until the Statesville location begins full production at mid-year.
Fiscal 1994's historical gross margin rate was 26.6% or slightly below the
pro-forma rate of 27.0% when the spun-off McWhorter operations are excluded.
Operating expenses (research, selling and administrative) increased $4,070,000
or 14.1% over pro-forma expenses in the first quarter last year, although
declined as a percent of sales from 21.0% to 20.4%. The increase in expenses
includes higher direct selling and research expenses, additional Consumer
promotional expenses and increased spending on information systems.
Other expense for 1994 on a historical basis included a pre-tax charge of
$2,474,000 for the write-down of a resin plant to appraised fair value that was
transferred from McWhorter to Valspar in connection with the spin-off of
McWhorter on April 29, 1994.
Net income for the first quarter of 1995 was 10.2% higher than the comparable
period of the prior year on a pro-forma basis, driven by the increase in sales.
On February 1, 1995 the hourly employees at the Company's facility in West Hill,
Ontario, Canada went on strike. Management believes this strike will not have a
material impact on the Company's financial condition or results of operations.
Financial Condition: The net cash used by the Company's operations was
$4,107,000 for the first quarter of 1995 compared to $992,000 for the first
quarter 1994. The additional net income and depreciation was offset by
additional working capital requirements. The increase in accounts receivable
results from the growth in sales. Inventories increased in 1995 due to the
additional production required to support the increased sales volume and revised
distribution arrangements and certain stock order programs in the Consumer
Group. Accounts payable and accrued liabilities decreased in the first quarter
as a result of first quarter payments of various year-end accruals.
First quarter borrowing from banks of $18,917,000 was used to fund seasonal
operating requirements of $4,107,000, capital expenditures of $10,038,000,
$1,572,000 of net additional treasury stock purchases and $3,230,000 of
dividends to shareholders. The higher capital spending is attributable to the
construction of new production facilities in Statesville, North Carolina and
Marengo, Illinois as well as the upgrade and replacement of existing management
information systems. The additional treasury shares purchased were subsequently
reissued under the Key Employee Bonus Plan.
The Company's total debt to capital ratio increased to 28.2% at the close of
first quarter 1995 from 22.5% at the close of fiscal 1994. The Company believes
existing lines of credit will be sufficient to meet its current and projected
needs for short-term financing. The Company is seeking Industrial Revenue Bond
financing for its plant construction projects in Marengo, Illinois and
Statesville, North Carolina.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
During the period covered by this report, there were no legal
proceedings instituted that are reportable, and there were no
material developments in any of the legal proceedings that were
previously reported on the Company's Form 10-K for the year ended
October 28, 1994.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibit 27 - Financial Data Schedule (submitted in
electronic format for use of Commission only).
(b) The registrant did not file any reports on Form 8-K during
the three months ended January 27, 1995.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE VALSPAR CORPORATION
Date: March 13, 1995 By /s/ R. Engh
R. Engh
Secretary
Date: March 13, 1995 By /s/ P. C. Reyelts
P. C. Reyelts
Vice President, Finance
(Chief Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-27-1995
<PERIOD-END> JAN-27-1995
<CASH> 2,364
<SECURITIES> 0
<RECEIVABLES> 106,802
<ALLOWANCES> (970)
<INVENTORY> 89,487
<CURRENT-ASSETS> 20,824
<PP&E> 217,998
<DEPRECIATION> (105,300)
<TOTAL-ASSETS> 365,298
<CURRENT-LIABILITIES> 133,323
<BONDS> 0
<COMMON> 13,330
0
0
<OTHER-SE> (2,725)
<TOTAL-LIABILITY-AND-EQUITY> 365,298
<SALES> 161,358
<TOTAL-REVENUES> 161,358
<CGS> 119,019
<TOTAL-COSTS> 32,815
<OTHER-EXPENSES> (250)
<LOSS-PROVISION> 93
<INTEREST-EXPENSE> 695
<INCOME-PRETAX> 8,986
<INCOME-TAX> 3,613
<INCOME-CONTINUING> 5,373
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,373
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
